Should a startup go all out on buying spree or wait for the cash flow to start

By Rahul Arora on January 17, 2011 13 Comments / 1967 views

Being a start-up, it is difficult to decide on how much should you invest. To keep track if you are going over board with your investments or these are really necessary to move your business.

Can someone share experiences on managing initial investments for the start-ups?

Regards,

Rahul Arora

Comments

Rahul Arora

13 Comments

Abey John January 18, 2011, 5:26 pm

I agree with both Niel and Vijay. I know of a company whose CEO started in less than 100 square foot space and used the packing cases their pcs came in as table tops. You have to choose where to spend. If its the plush ergonomic leather chair with surround sound equipped CEO table then by pass on that one. If you are investing in infrastructure with an eye on growth then build out for capacity be ready to spend if needed. E.g. start with a shared web host but with a ready n tested migration plan to a dedicated server in case you have explosive growth. Cash is like water to the farmer. You need to know which part of your field needs to be irrigated today and spend on that.
Rahul Arora January 18, 2011, 5:35 pm

Interesting thoughts,

I am getting idea that it would be beneficial if first most critical requirement to start and run the business are categorized along with things those are good to have. I remember Alok talking in one of his articles that start-ups need to think like marwaris.

Some times, the business prospects looks so big that you get carried away with the propects of pulling it more by investing more resources rathen than going slow and built the way.

Thrill of start-up is kicking in and it is un-matchable.
pankaj khandelwal January 18, 2011, 6:33 pm

Rahul,i started my nursing home with the bare minimum essentials…and took it from there ,slowly and gradually.Its so easy to pump in money into our new venture with a lot of pomp and show and then realize that the part we watered was the part which did not need the water .If one starts small,there is plenty scope available to expand in some unthought of direction of the business….

Rahul Arora said:

Interesting thoughts,

I am getting idea that it would be beneficial if first most critical requirement to start and run the business are categorized along with things those are good to have. I remember Alok talking in one of his articles that start-ups need to think like marwaris.

Some times, the business prospects looks so big that you get carried away with the propects of pulling it more by investing more resources rathen than going slow and built the way.

Thrill of start-up is kicking in and it is un-matchable.
Himanshu Mody January 19, 2011, 9:32 am

I learned the importance of cashflow and working capital the hard way. Small small things like taking AC’s and computers on rent instead of buying them out make a lot of difference to cashflow availability for a start up. If you have 1 lac Rs and you use that to buy stuff straight away , you are diminishing the amount of things you can do with the money. With 1 lac I can probably get only 2 AC’s and 2 computers and leaves no cash on my hand to do business. However if I rent them I get to use the same 2 AC’s and 2 Computers for say 7k per month and with an opportunity to use them and at the same time use the balance funds for more productive purposes in business.

I have done this myself in my initial days. It helped me tremendously to make best use of my limited funds.
Himanshu Mody January 21, 2011, 6:35 am

that’s cool Vijay , Also I want to share another thing that has helped me. When we started experiencing growth in 2005 and place became an issue , we kept adding small offices in the same building [ had 9 offices on a higher side ] , with the amount of rent we were paying , we could have easily moved to a Large Corporate office. However , while we were growing , I had not forgotten the tough times of recession. This decision helped me tremendously to handle the recession that hit us badly in 2008. I kept on releasing one office after the other , and actually ended up with just one office with my core team intact. And with first sight of things looking positive, we again took up new offices to be ready for meeting growth.

I understood the meaning of this line I read somewhere ‘ Prepare for losses after gains and for gains after a loss’ .

Vijay Bhatt said:

Himanshu, i even rented the chairs for the office initially and later bought chairs one by one. although i did plan one thing….i told the local chair store that though am buying one only right now..but i would need the exact colour chairs later….so he sold me the one that was easy to find…and i bought my chairs slowly over a period of six months. 🙂

Himanshu Mody said:

I learned the importance of cashflow and working capital the hard way. Small small things like taking AC’s and computers on rent instead of buying them out make a lot of difference to cashflow availability for a start up. If you have 1 lac Rs and you use that to buy stuff straight away , you are diminishing the amount of things you can do with the money. With 1 lac I can probably get only 2 AC’s and 2 computers and leaves no cash on my hand to do business. However if I rent them I get to use the same 2 AC’s and 2 Computers for say 7k per month and with an opportunity to use them and at the same time use the balance funds for more productive purposes in business.

I have done this myself in my initial days. It helped me tremendously to make best use of my limited funds.
Ajay Sanghani January 23, 2011, 2:00 pm

Generally, startups over invest in Sales and under-invest in Delivery, Processes and After-Service.

Don’t compromise on the delivery and service budgets , Sell only to a point where you can delight your customers. Even sacrifice margins or take a hit to delight your early customers so that you have a good repeatable process for your future pipeline of customers.

Take calculated risks as far as you can, no point in penny pinching and playing safe and missing the opportunities to scale @ speed.
Pankaj Umrania January 23, 2011, 5:28 pm

Rahul you have touched a right string, many of us ponder over the same thing!

When I started my business, less than a year back, I was very clear on the thought that I won’t spend a penny out of my pocket and neither would I draw any salary for atleast 6 months…in a way investing what I earn.

I started it with my personal laptop, which is all I had in the name of infrastructure. I procured clients from my network and focussed on delivering quality and value using freelancers I had worked with in the past.In no time I got some really good VCs who believed in me enough to want to invest in the business but I had decided not to go that route till the time I make it a one billion company.

I plough back money as I earn it.

When I started this venture I knew I had to manage my personal expenses. For the initial survivial, I stopped driving my Sedan and started traveling in DTC buses for the client meetings. I also shifted to a smaller house. I handeled the expenses smartly, based on my observations and experiences while working with other startups.

Today my company is less than a year old but we’ve got a decent infra and have some blue chip clients in the pocket from across the globe. We continue to deliver quality and value to them and they have faith in what we do and how we do it.

I further plan to invest revenues in –

1. Strong leadership team

2. Value added delivery

Cheers

Pankaj Umrania

Two55am
Rahul Arora January 24, 2011, 11:12 am

One thing very evident from the discussion, start-up really test the decision making abilities. Every-day seems to be a new crossroad and which one to choose is the key.

My key learning from this discussion, being a one month old start-up guy, invest in Service, Processes and quality. Scale and Quality are joined at hip and that is processes, if the processes have been made strong in the very beginning then scaling may be little smooth.

Thanks Everyone for sharing experiences.

Cheers,

Rahul Arora
Himanshu Mody January 25, 2011, 8:32 pm

Agree, 10 years into the business and I still do not have a sales team. Our focus on improving execution and delivery has helped us to get repeat customers and new customers.

We have achieved reasonable growth, However, I have been growing in a painfully slow manner compared to other players in the space that we operate in. It does bother me at times , but I think it is more important to do things right then to grow 10 times faster and collapse on ignorance of things you missed.

I am happy with how things are shaping up , let’s see if we can add some speed.

Ajay Sanghani said:

Generally, startups over invest in Sales and under-invest in Delivery, Processes and After-Service.

Don’t compromise on the delivery and service budgets , Sell only to a point where you can delight your customers. Even sacrifice margins or take a hit to delight your early customers so that you have a good repeatable process for your future pipeline of customers.

Take calculated risks as far as you can, no point in penny pinching and playing safe and missing the opportunities to scale @ speed.
Abey John January 26, 2011, 2:38 am

Himanshu, growth can be accelerated by effective marketing. The kind which generates deep desire and passion for your product/service in your market. With the internet you really don’t need a very big budget but it may require you to align your processes somewhat.

My favorite example is the Avis Rent A Car We try Harder campaign in the 1960s. They re-engineered their customer service to match the advertising. Logic being you cant have great marketing latched to a bad product and still hope to succeed beyond your wildest dreams.

From what you say you already have the ‘good product’ part nailed down. Now just pour on some savvy marketing and you will be on top of the pile.

Repeat. Top of the pile. Not kidding.

Himanshu Mody said:

I have been growing in a painfully slow manner compared to other players in the space that we operate in.

Ajay Sanghani said:

Generally, startups over invest in Sales and under-invest in Delivery, Processes and After-Service.

Don’t compromise on the delivery and service budgets , Sell only to a point where you can delight your customers. Even sacrifice margins or take a hit to delight your early customers so that you have a good repeatable process for your future pipeline of customers.

Take calculated risks as far as you can, no point in penny pinching and playing safe and missing the opportunities to scale @ speed.
Himanshu Mody February 3, 2011, 6:33 am

Thanks Abey ! I have been using Google Adwords to reach out to my target audience. Also we sponsor key events around the year which helps us to reach out to clients. The maximum business comes from word of mouth.

Any other ideas ?

Abey John said:

Himanshu, growth can be accelerated by effective marketing. The kind which generates deep desire and passion for your product/service in your market. With the internet you really don’t need a very big budget but it may require you to align your processes somewhat.

My favorite example is the Avis Rent A Car We try Harder campaign in the 1960s. They re-engineered their customer service to match the advertising. Logic being you cant have great marketing latched to a bad product and still hope to succeed beyond your wildest dreams.

From what you say you already have the ‘good product’ part nailed down. Now just pour on some savvy marketing and you will be on top of the pile.

Repeat. Top of the pile. Not kidding.

Himanshu Mody said:

I have been growing in a painfully slow manner compared to other players in the space that we operate in.

Ajay Sanghani said:

Generally, startups over invest in Sales and under-invest in Delivery, Processes and After-Service.

Don’t compromise on the delivery and service budgets , Sell only to a point where you can delight your customers. Even sacrifice margins or take a hit to delight your early customers so that you have a good repeatable process for your future pipeline of customers.

Take calculated risks as far as you can, no point in penny pinching and playing safe and missing the opportunities to scale @ speed.
Himanshu Mody February 3, 2011, 7:33 am

Hi Jyoti,

We are still trying to decipher the Social media use in our business.

just couple of days ago we set up our facebook page. Also apart from sponsoring events we have been organizing events

under a Community initiative called RIA Connect, this is more of an awareness thing that I do with some help from Adobe.

I tend not to talk about my services in this , but just about opportunities in Flash platform. Here is a link to a report of an event done last week by us. https://teknopoint.wufoo.com/reports/feedback-ria-connect/

Reaching out to colleges has been the most difficult bit. Will try the poster Idea though.

Thank you for the idea. Well, target audience – that has another story to it. 🙂

Jyoti Shukla said:

@ Himanshu: I thinks you can do more in content marketing and social media marketing . As I see, you have career course so if I were you, I would try to reach students in variuos ways. Be it thought mail letters, social networks, site-blog where students can interact and other social media platforms. I would also try to do some offline marketing by sending flyers to colleges/ university heads and request them to display these flyers on notice boards. Maybe even place print ads in tier 2-3 town newspapaers during summer vacations.

I am not aware of your target audinece so I might be wrong; these are just an outsider’s broader impressions.

Himanshu Mody said:

Agree, 10 years into the business and I still do not have a sales team. Our focus on improving execution and delivery has helped us to get repeat customers and new customers.

We have achieved reasonable growth, However, I have been growing in a painfully slow manner compared to other players in the space that we operate in. It does bother me at times , but I think it is more important to do things right then to grow 10 times faster and collapse on ignorance of things you missed.

I am happy with how things are shaping up , let’s see if we can add some speed.

Ajay Sanghani said:

Generally, startups over invest in Sales and under-invest in Delivery, Processes and After-Service.

Don’t compromise on the delivery and service budgets , Sell only to a point where you can delight your customers. Even sacrifice margins or take a hit to delight your early customers so that you have a good repeatable process for your future pipeline of customers.

Take calculated risks as far as you can, no point in penny pinching and playing safe and missing the opportunities to scale @ speed.
Himanshu Mody February 7, 2011, 5:18 am

Hi Jyoti,

Thank you for the recommendations. I have ordered the books via infibeam. Looking forward to read them.

Thanks for sharing 🙂

-H

Jyoti Shukla said:

Hi Himanshu: I would like to suggest you to go through these 3 books:

1. Digimarketing (Kent Wertime, Ian Fenwick)

2. Get Content Get Customers (Joe Pulizzi and Newt Barrett)

3.Cashing in with Content (David Meerman Scott)

These books are excellent guides for small business owners with real life examples of successful content and social media marketing. They showcase diverse businesses and will be very helpful in leveraging the free online marketing benefits.

Himanshu Mody said:

Hi Jyoti,

We are still trying to decipher the Social media use in our business.

just couple of days ago we set up our facebook page. Also apart from sponsoring events we have been organizing events

under a Community initiative called RIA Connect, this is more of an awareness thing that I do with some help from Adobe.

I tend not to talk about my services in this , but just about opportunities in Flash platform. Here is a link to a report of an event done last week by us. https://teknopoint.wufoo.com/reports/feedback-ria-connect/

Reaching out to colleges has been the most difficult bit. Will try the poster Idea though.

Thank you for the idea. Well, target audience – that has another story to it. 🙂

Jyoti Shukla said:

@ Himanshu: I thinks you can do more in content marketing and social media marketing . As I see, you have career course so if I were you, I would try to reach students in variuos ways. Be it thought mail letters, social networks, site-blog where students can interact and other social media platforms. I would also try to do some offline marketing by sending flyers to colleges/ university heads and request them to display these flyers on notice boards. Maybe even place print ads in tier 2-3 town newspapaers during summer vacations.

I am not aware of your target audinece so I might be wrong; these are just an outsider’s broader impressions.

Himanshu Mody said:

Agree, 10 years into the business and I still do not have a sales team. Our focus on improving execution and delivery has helped us to get repeat customers and new customers.

We have achieved reasonable growth, However, I have been growing in a painfully slow manner compared to other players in the space that we operate in. It does bother me at times , but I think it is more important to do things right then to grow 10 times faster and collapse on ignorance of things you missed.

I am happy with how things are shaping up , let’s see if we can add some speed.

Ajay Sanghani said:

Generally, startups over invest in Sales and under-invest in Delivery, Processes and After-Service.

Don’t compromise on the delivery and service budgets , Sell only to a point where you can delight your customers. Even sacrifice margins or take a hit to delight your early customers so that you have a good repeatable process for your future pipeline of customers.

Take calculated risks as far as you can, no point in penny pinching and playing safe and missing the opportunities to scale @ speed.